Chemtrade Logistics Income 6 50 Convertible Unsecured Subordinated Debentures T.CHE.DB.E

TD Waterhouse initial comments

[hawk35]

Don't average down until after the conference call.  TDW felt the written announcement lacked details and the conferenece call should fill in the blanks.

Below is TDW initial comments.  They will revise the target price later this afternoon or tomorrow.



Chemtrade Logistics Income Fund
(CHE.UN-T) C$11.72
Q4/18 First Look
Damir Gunja
Paul Bilenki, CFA

Event
Chemtrade reported Q4/18 Adjusted EBITDA of $65.0mm (up 6% y/y), well below
our estimate of $79.1mm and consensus of $77.9mm.
10:00 a.m. ET conference call (647-427-7450 or 1-888-231-8191).
 
Impact: NEGATIVE
 
Overall, we view the Q4/18 results as very disappointing as EBITDA came in
below our forecast in all three segments. On Chemtrade's Q3/18 conference call,
management stated that it expected Q4/18 results would be "materially better" y/
y and has continued to tout the underlying strength in pricing for the majority of its
key products, yet Q4/18 EBITDA excluding corporate costs declined by $10.7mm
y/y (~12%).
Given limited disclosure by the company, we believe that the conference call will
be key in determining the magnitude of the impact of the issues faced, and the
outlook moving forward.
SPPC - EBITDA of $17.3mm was below our estimate of $22.7mm. While sulphuric
acid pricing improved y/y, volumes declined y/y, impacted by an extended
maintenance turnaround at the main pipeline refinery connected to Chemtrade's
Beaumont, Texas facility, unplanned downtime at customer sites, and an extended
outage at a large regen plant.
WSSC - EBITDA of $11.9mm was below our estimate of $20.5mm as margins
remained under pressure from higher raw material and freight costs and with two
specialty chemical customers significantly reducing their purchases.
EC - EBITDA of $46.2mm was below our estimate of $52.4mm, with sales volumes
in the quarter coming in slightly below our forecast. Additionally, we believe that
Chemtrade likely saw a larger q/q decline in realized pricing for its chlor-alkali
products than we were forecasting.
Corporate costs - Corporate costs of $10.4mm were below our estimate of
$16.5mm, with LTIP and incentive compensation costs down $6.4mm y/y.
Chemtrade reiterated its commitment to its distributions (currently 10% yield).
Despite a very challenging year with a number of issues impacting results, the
company generated distributable cash per unit of $1.53 in F2018 (excluding legal
provisions), a 78% payout ratio.
Chemtrade exited the quarter with $1,254.8mm of net debt (4.2x LTM EBITDA)
and the company continues to have ample room under its financial covenants.